The Emirates Economist

Thursday, March 26, 2009

People respond to incentives, Orthodox edition

At the end of 2007, in a move to reverse the Caucasian country's dwindling birth figures, the head of the Georgian Orthodox Church, Patriarch Ilia II, came up with an incentive. He promised to personally baptise any baby born to parents of more than two children.

There was only one catch: the baby had to be born after the initiative was launched.

The results are, in the words of the Georgian Orthodox Church, "a miracle".

The country's birth rate increased by nearly 20% during 2008 - a rate four times faster than the previous year.

Many parents say they took the decision to have another child on the basis of the Patriarch's incentive. ...The next baptism is scheduled for early April, when thousands of mums, dads and their children will cram into Tbilisi's biggest church, the Sameba Cathedral. The babies will be briefly dipped into a gigantic inflatable font after receiving a blessing from his Holiness, Ilia II.

UAE, Dubai thinking countercyclically

According to Mohammed Ahmad bin Abdul Aziz, Director-General of the UAE Ministry of Economy, VAT is "not on the table". "It's not up for discussion… it's not on the table at the moment and we don't foresee that happening in the near future," he said on the sidelines of the Arab Investment Forum yesterday.

Hisham Abdullah Al Shirawi, Second Vice-Chairman of Dubai Chamber of Commerce and Industry, said he is not sure whether VAT will be implemented, adding that in times like these, the government is rather expected to lower its service fees.

Friday, March 20, 2009

Elective surgery in recession

1. Vasectomies - UP, kids are normal goods. Besides your health plan typically pays for it, and you might be out of a job soon.2. Lasik - DOWN. Health insurance typically does not cover. Put it off.3. Breast enhancement, tummy tuck, etc. - DOWN. See lasik above. Interesting reading at Freakonomics - How cosmetic surgery is different from buying a new car:

If you delay the purchase of a new car, your current car gets older and more rundown until you finally have no choice but to purchase a new one. Your body also gets older and more rundown, but unlike with a car, when things get too far gone, you just give up and never have the cosmetic fix-ups done.

Here are the statistics. People who are 35 to 50 years old get the most cosmetic work done, accounting for roughly 45 percent of the business. People in the 51- to 64-year-old range represent 26 percent of the procedures. People 65 and over, however, are responsible for only 6 percent of all the procedures.

Within procedures, there are further strong age patterns. Breast augmentation and nose jobs are heavily tilted toward the young. Tummy tucks are for 35- to 50-year-olds. People between 51 and 64 get facelifts.

Is that why we call them fatcats?

New Scientist

Barbara Briers of the HEC business school in Paris, France, and colleagues decided to test whether our appetite for cash is directly related to our appetite for food.

They made three discoveries: hungry volunteers were less likely to donate to charity than those who were satiated; those primed to have a high desire for money, by having imagined winning a big lottery, went on to eat the most candy in a taste test; and people whose appetites had been piqued by sitting in a room with a delicious smell, gave less money in a game situation than those who played in a normal-smelling room (Psychological Science, vol 17, p 939). Briers reckons this indicates that our brain processes ideas about money using the same pathways evolved to think about food, so that in our minds the two are synonymous. If she is correct, it puts a whole new spin on the term "greedy bankers".

New Gulf economics blog

Check out Iqtisad Al Khaleej (Gulf Economy) dedicated to covering economic, financial and political issues in the Gulf. If you follow The Emirates Economist for coverage of these issues, you'll want to consider adding Gulf Economy to your reading.

Like The Emirates Economist it looks like Gulf Economy will venture outside those issues at times. Consider this post:

Dubai is drowning in debt and defaulting fleeing expatriates, and across the United Arab Emirates rigid visa and labors law mean people who lose their jobs have to leave within a month. But how do the authorities react?

Yes, by clamping down on an apparent rise in lesbianism - cough - "masculine women".

BBC World: The UAE government has launched a campaign against what it describes as masculine behaviour among women.

Under the slogan "excuse me I am a girl", it has launched a series of workshops, lectures and TV programmes.

The aim, the UAE authorities say, is to help women avoid what is seen as "delinquent behaviour".

That is how the social affairs ministry in the emirates describes what would in some other societies be known as homosexuality or transvestitism.

More from the BBC report:

There were no studies available that describe the extent of the phenomenon in the rest of the Emirati society, they said, but it is believed to be common in girls' schools.

A social worker in charge of the campaign, Awatef al-Rayyes, was quoted as saying that this kind of behaviour could be attributed to a number of causes including the unfair treatment of wives by their husbands and lack of mixing between the sexes.

This, she said, could lead to girls feeling more secure in the company of other girls and some may adopt the male role by having their hair cut short or by putting on a man's voice.

Officially, Arab societies view heterosexuality as the publicly accepted norm, and all other forms of sexuality or sexual conduct are regarded as deviant or abnormal.

This week, officials jumped to action by launching a campaign called “Excuse me, I am a girl." (I'm pretty sure that was lifted straight from "The Valley Girl's Guide to Political Rhetoric.") It's aim: to fight a major "menace" to Arab society: lesbians.

Officials say that lesbians, euphemistically known as "manly" women or the "fourth sex," harass "normal" women, according to the Los Angeles Times [blog]. The government isn't interested in cracking down on harassment, though, so much as they want to eradicate inadequate femininity. The Times reports that "the campaign, which involves educational experts and psychologists, will include awareness workshops to explain the phenomenon and ways to face it." Naji Hay of the ministry of social affairs told a local TV station: "The phenomenon of manly women has become apparent in society ... These women are against the normal nature of females."

A recent debate on a UAE radio station criticising the emergence of female homosexuality has brought to light that the practice is rampant in ‘female-only' educational institutions, particularly among those residing in university dormitories....Meanwhile, several UoS students have alleged the existence of physical relationships between women students, especially among those living in the female dormitories on campus.

A student, who spoke on condition of anonymity said, "Only recently, I saw two women students kissing each other behind the dorms. They behaved like a man and woman in love."

Another student who also spoke on condition of anonymity said, "There are many female students who behave like men on the campus. They sport short hair, no makeup, and do not wear a sheila. Their mannerisms resemble that of men and appear to be physically tough," she said, disclosing that they remain weary of such students who approach pretty female students and ask them for a kiss.

"Besides, there are a number of girls who appear very normal when they meet, but send out SMS messages to pretty girls asking them for a physical relationship."

More than two dozen gay Arab men — arrested at what police called a mass homosexual wedding — could face government-ordered hormone treatments, five years in jail and a lashing, authorities said Saturday.

The Interior Ministry said police raided a hotel chalet earlier this month and arrested 22 men from the Emirates as they celebrated the wedding ceremony, one of a string of recent group arrests of homosexuals here.

Wednesday, March 18, 2009

Women's political participation in the UAE

HE Dr Anwar Mohammed Gargash, Minister of State for Foreign Affairs and Federal National Council Affairs, and Chairman of the Board of Trustees of the Dubai School of Government (DSG), today announced the release of a report on women’s participation in the UAE political arena.

Entitled 'Women in Parliament and Politics in the UAE: A Study of the First Federal National Council Elections', the report details the results of an independent study jointly authored by Dubai School of Government’s Gender and Public Policy Programme and the Ministry of State for Federal National Council Affairs....HE Dr Anwar Mohammed Gargash said: “This study shows that government support for women’s participation has driven women to the forefront in the political process. However, government still has a role to play in encouraging a wider and more comprehensive societal shift to promote women’s participation in political and civil society...."...Dr Tarik Yousef, Dean of the Dubai School of Government, said: “Gender inequality is an important and critical issue in the Arab world today. We hope that this report will offer some assistance in redressing the gender gap in political development.”...[The report] recommended introducing gender-neutral quotas, providing quality training for candidates, involving more women in the electoral process, closing the gender gap in citizenship rights and lengthening the campaign period....In general, the report called for broadening the range of women’s scope in politics, raising general awareness about the role of women in the FNC, widening avenues for engagement with civil society, and creating meaningful partnerships with the media to empower the Federal National Council.

I'm glad to see this development and congratulate the UAE on its leadership in the region. It would be interesting to see these recommendations implemented in tandem with a strengthening of the powers of the FNC.

S&P downgrades Dubai credit ratings

Standard & Poor’s lowered its ratings on a series of big government-linked companies in Dubai on Tuesday, owing to the emirate’s deteriorating economic outlook.

The credit rating agency also put four Dubai-based banks on review for downgrade, predicting that a contracting economy and wilting property market will weigh on the emirate’s financial institutions.

Dubai’s half-decade of rapid growth and extravagant construction projects has been abruptly reversed by the credit crunch, exposing an $80bn pool of largely short-term debt....The rating agency expects Dubai’s economy to contract between 2 per cent and 4 per cent this year....The agency said it expected the “interventionist” federal government to shore up systemically important banks and government-linked entities, adding some support to long-term ratings. Dubai has been extended a $10bn lifeline by the federal government.

The financial crisis is global, so why single out Dubai which is still doing relatively better than other global financial and commercial centres?

The answer to this question was the underlying theme ably addressed by Dr [Christopher] Davidson in his interesting book about this trendsetting city.

Despite the numerous factual and historical errors, the book is a scholarly work and comes across as being generally fair and sympathetic to Dubai.

But Dr Davidson's sudden public change of heart is rather surprising. A presumable lover turning into a sharp critic and orchestrating a character assassination campaign of the former muse in the media raises serious questions about not only motivation and credibility but also consistency and authenticity.

Dr Davidson, with his vast and first-hand knowledge, knows that Dubai is not a real estate bubble and is not going to sink. He is also in a position to refute all the silly headlines about tensions between Dubai and Abu Dhabi, the two pillars of the UAE.

How he opted to reinforce the convoluted image of a furious Abu Dhabi taking over and reining in the maverick Dubai defies reasoning.

Bill Clinton walks away from $20 million

Mr. Clinton was one of the three owners of the foreign fund's general partner, along with Mr. Burkle and Dubai Investment Group (YGP) Ltd., an entity that was part of the business empire of Sheikh Mohammed bin Rashid Al Maktoum, the ruler of Dubai.

Men STILL working in women's lingerie in Saudi Arabia

Reem Asaad finds it annoying to buy her bras and panties from a man. But she doesn't have much choice in the matter. Although Saudi Arabia has the strictest gender segregation in the world, only men are hired as sales staff in most retail stores. "We have men selling g-strings in stores to women which doesn't happen anywhere in the world," said Asaad.

But the 37-year-old professor of finance and banking is even more frustrated that a three-year-old regulation permitting female sales clerks has not been implemented....One 21-year-old Saudi man who works in a lingerie chain called "Women's Secret" is too embarrassed to tell his friends. "I swear before I took this job, I never even went into these stores with my sisters and family because I was too embarrassed and now I work in one," he said....Salahuddin Younus, who works in the lingerie section of Debenhems, a large department store, said that after a year and a half, he has gotten used to dealing with customers, most of whom cover themselves head to toe, including their faces. "Some customers say, 'My breast is going down. I need to push up,'" said the salesman, who is from Bangladesh, grabbing a push-up bra from a rack.

For previous Emirates Economist coverage of this lingerie issue on the Arab peninsula just click the lingeria label at the end of the post.

All the news about Dubai, Abu Dhabi & the UAE

"All the news about Dubai, Abu Dhabi & the UAE." Yep, that pretty much describes appleshisha.com.

I've added it to my blogroll. Go and look. Notice what happens when you hover your mouse over a link. Cool. And keep scrolling: Lots of regional media and blogs represented. Thanks for including Emirates Economist.

The Financial Times says the same applies to Dubai. Reports of its death have been exaggerated:

Its fundamentals as a regional hub of shipping, services, people, trade and capital have not changed....It is a simple model, reflected in the statement of Sheikh Rashid bin Saeed al-Maktoum, the late ruler of Dubai: “What’s good for the merchants is good for Dubai.” Creating a hub for merchants has been an al-Maktoum family tradition for more than a century. And it is those merchants and migrants, dreamers and entrepreneurs, who built Dubai, who deserve equal credit for its rise and who will help it grow again.

This openness to foreign talent will support Dubai as it faces today’s crisis....To understand why Dubai will survive, it is important to understand its commercial geography. It is not solely an Arab state – demographically or commercially. It is a commercial and tourist hub for a region that encompasses the growing markets of south Asia, emerging Africa, oil-rich Russia and the Gulf states, Iran, central Asia and the Caucasus, Europe and China. And it works largely because of the heavy infrastructure investment made by Dubai’s rulers and the expatriate traders, service professionals, construction workers, bankers and techies who make up 90 per cent of the population....Infrastructure spending is old hat in Dubai. When Sheikh Rashid built the Jebel Ali port in 1979, to much criticism, he made a big bet – and won. Today, Jebel Ali helps place Dubai among the 10 largest container terminal port cities in the world. When Sheikh Rashid chose to take on a big loan in the late 1950s to dredge the Dubai creek to allow for larger ships, he was panned. It worked. The ships came, and so did the merchants. The pre-oil emirate grew and flourished.

The same can be said of its airports, airlines, telecommunications and broadband networks, metro system and expanded highways. There is no city within striking distance of challenging Dubai as a hub in a region that extends beyond the Arab world to 1.5bn people....Dubai’s property bubble popped. Its hubris also (thankfully) popped. Its core business model, however, did not.

Americans least likely to favor free trade

Majorities in all 24 nations surveyed say increasing trade and economic integration is a good thing for their countries. In fact, enthusiasm for trade is pervasive in a number of countries and not just in nations such as China, where there is widespread satisfaction with the economy. By contrast, of the countries surveyed, the U.S. is the least supportive of trade.

While enthusiasm for trade is broad based, some publics are more convinced of its value than others. For example, an overwhelming majority of Nigerians (91%) say increased trade ties are either “very good” or “somewhat good,” with six-in-ten (59%) saying “very.” Large percentages of other publics also feel strongly about such ties; more than four-in-ten in Pakistan, South Africa, India, Tanzania and Lebanon say increased trade is “very good."

The fact that the US comes last doesn't fit my priors, but there's no deny it. I know many Americans oppose free trade, and appeal to the prejudice is an easy way for a politician to stir up support. But when you compare trade barriers across different countries you find that the U.S. has some of the lowest. (At least I believe that to be the case.) You'd think, then, that in countries with high trade barriers, public support for free trade would be lower. It seems the U.S. is highly open to trade in spite of a substantial minority who oppose it.

Lies damn lies and statistics

The title comes from a quote from Disraeli and popularized by Mark Twain (wikipedia). Don't be beguiled simply because someone trots out some numbers.

I was reminded of it from Seabee's post on a Gulf News report that a government official in Dubai say "DNRD [Dubai Naturalisation & Residency Dept] has cancelled the residency visas of about 44,000 people during February and issued more than 66,000 residency visas in the same month."

Seabee's response:

There are two blindingly obvious questions as far as I'm concerned.

One, were the 66,000 residency visas issued all for new arrivals or were some of them renewals? If it includes renewals, how many new visas were issued?

Two, what are the usual monthly cancellation/issuance figures for residence visas?

The questions about renewals is crucial because in the UAE residence visas must be renewed every three years.

There's also the question about cancellations. The policy had been to cancel anyone who had been out of the country more than 6 months. An anonymous commenter at UAE community blog says that has been increased to 3 years. If true that's another wrinkle to consider in interpreting numbers. The commenter says there's an economic logic to the change (i.e., it's not merely to game the numbers): it leaves the door open for those who have left to come back without a lot a paperwork. I presume that means come back to their old jobs.

Downward Spiral

Subtitle: Gulf Region Real Estate in the Era of Cheap Oil.

That is the title of one of several reports just published by Knowledge@Wharton.

From the real estate report:

In explaining why the problem is magnified in the region, Verma points to three factors. "As the real estate sector unwinds, there are fewer jobs, and people are forced to leave because they cannot stay without a job. Fewer people means less demand for real estate and fewer shoppers at the mall. It becomes an obvious downward spiral."

In addition, he says, "bankruptcy and debt laws in Dubai are very harsh. It makes sense in markets [not characterized] by the wide adoption of credit for growth. However, so many buyers have [been using] credit without knowing the legal implications of default. Now that they know, people are leaving, which once again translates to fewer buyers, less shoppers -- again, a downward spiral."

Finally, he notes, "monetary policy is important. In the U.S., the government can print trillions of dollars and amortize over the largest economy in the world. They can slash interest rates to practically zero to reduce debt and the cost of servicing debt. In Dubai, they can't. That's why they need Abu Dhabi [to help]. They can't lower interest rates. In fact, interest rates are going up, further squeezing borrowers and stifling any remaining growth. This further increases [the number of] defaulters, again driving people out."

Circumcision taken to new heights

The movie Watchmen is being shown on the big screen in the UAE. Only problem? Censors cut the main character from the final 20 minutes due to a lack of a wardrobe. I would have thought maybe some strategic blurring could suffice.

Tuesday, March 10, 2009

The French rediscover enterpreneurship

On faismesdevoirs.com (domyhomework.com), children will be able to buy answers to simple maths problems for 5 euros ($6), while a full end-of-year presentation complete with slides and speaking notes will cost 80 euros ($100).

"I realized there was a gap in the market. Add to that a dose of insolence, a zest of arrogance and the internet, and you have faismesdevoirs.com," he said...."It is shocking. It defeats the purpose of education which is that the pupils need to learn for themselves how to do the work," said Agathe Field, a young English teacher at a secondary school in a suburb of Paris.

"It turns them into consumers. The message is that for the right price you can get the results you want. It's nonsense," she said.

Sunday, March 08, 2009

Ahmadinejad dodges shoe

When the Iraqi journalist, Muntazar al-Zaidi, hurled his shoes at the then-US president, George Bush, in December, Iranian officials declared him a hero and hailed his gesture as a mark of Islamic courage.

They were presumably less impressed this week when Iran's president, Mahmoud Ahmadinejad, was similarly targeted during a visit to the north-western city of Urumiye.

Ahmadinejad found the shoe on the other foot as he waved to the crowd from an open-top car on his way to give a speech at a local stadium.

An Iranian website, Urumiye News, reported that a shoe was hurled at the president as his convoy drove through a central square.

Saturday, March 07, 2009

Redundant and in debt in the UAE

It was the start of a nightmare that is still not resolved. ‘The week before I was made redundant, I took out a loan to cover a year’s rent on an apartment. My employers were obliged to tell the bank that I no longer worked for them, which they duly did. I went to see the bank to reassure them that I could make the first couple of payments while I looked for a job and they said that was fine and to keep them posted. Then the next day they froze my bank account without telling me.’

To make matters worse, the bank told Stephen he wasn’t allowed to leave the country for Christmas unless he had a guarantor in place for his loan – something which he said he would never expect a friend to do. ‘It was actually quite frightening – one minute I was treated like a valued customer, then suddenly I was made to feel like a criminal,’ he says. ‘You would imagine that as long as I could pay my instalments it would be OK. I told them that I had enough money to pay in January and February and that my partner would pay from then on when she arrived here, but they weren’t interested. You tell them, “I can’t eat, I can’t get to job interviews,” and they’re not interested.’

Belt tightening at the American University of Sharjah

Dr Peter Heath, who took over as chancellor last year, said the cutback in non-academic staff had been decided by the university’s board of trustees as a result of the “uncertain conditions” in the economy.

What will Abu Dhabi ask in return?

Dubai is suffering from a slump in the trading, lending, holidaying and profiteering that buoyed this remarkable emirate for so long.

On February 22nd Dubai was hoisted out of its financial trouble by its oil-rich neighbour, Abu Dhabi. The central bank for the United Arab Emirates (UAE) bought $10 billion-worth of Dubai’s five-year bonds. The bail-out confirmed everyone’s assumption that Abu Dhabi would not let the second-biggest member of the UAE fail. But its benefactor waited long enough to plant a seed of doubt in people’s minds. In recent weeks, the spreads on credit-default swaps for securities issued by Dubai’s government and several of its biggest corporations have widened alarmingly, if a little hysterically....But what will Abu Dhabi ask in return? On the face of it, not much. Tristan Cooper, of Moody’s, a rating agency, had expected Abu Dhabi to be “a bit more fussy” about how the funds were used. It might, say, have taken equity stakes in Dubai’s freewheeling corporations or sought some control over their managers.

But Mr [Christopher] Davidson thinks the unstated price of Abu Dhabi’s support will be stiff indeed. “It is the end of the second emirate’s economic autonomy, which it has fiercely protected,” he says. Why else did Abu Dhabi put Dubai through “months of pain and humiliation”, if it did not see some long-term gain from chastening its neighbour and strengthening the UAE federation, Mr Davidson asks. Dubai will now have to be more accommodating of its neighbour’s wishes, he says. It will, for example, have to forgo its independent foreign policy, which had seen it become Iran’s outlet to the world, even as Abu Dhabi kept a careful distance.

That's one side of it. The other is that Dubai had Iran to go to as a lender of last resort -- Abu Dhabi didn't want Dubai to cross that bridge.

That raises the question, what is Abu Dhabi getting in return? Once the financial crisis passes what is to prevent Dubai from reasserting its independence?

Interesting, too, that the article doesn't say anything about Dubai's domestic policy or economic model. The fact is that Abu Dhabi has been busy playing catch up to Dubai in terms of hotels, higher education, technology, museums.

Making Islamic finance transparent

Here's how the mortgage, known as Murabaha financing or "cost plus sale," works:

The state buys a home and resells it to the buyer at a higher price. The down payment and monthly installments are agreed to up front at current mortgage rates.

The deal is identical to a thirty-year fixed-rate loan, except there's no additional interest, because the higher up front price factors in payments that would have been made over the life of a traditional mortgage.

A handful of private banks and lending institutions offer Islamic mortgages in the U.S., but Minnesota Housing is the first state agency to offer such a product.

In the U.S. mortgage interest is tax deductible -- it can be used to reduce the tax you owe on your income tax. I wonder if the home buyer taking an Islamic mortgage will still be able to take this deduction. Because otherwise these mortgages are mathematically equivalent, economically equivalent to a conventional fixed interest mortgage. It is only in the mind of the borrower that they appropriate for a devote Muslim whereas a conventional fixed interest mortgage is not.

To me an Islamic mortgage would be one where the buyer and the lender shared the profit (or loss) of any eventual sale of the property.

Tuesday, March 03, 2009

Are mergers the answer?

Most observers say part of the problem the world economy is facing come as a result of the massive size of companies like Citigroup and AIG. They became too big to manage, too big to fail (hence, knew they would receive bailouts if they failed, skewing their incentives to take on excessively risky strategies), and are now too big for government takeover.

The question arises: are mergers in this environment a good idea? Look at the trouble Bank of America is in since taking over Merrill Lynch. Is it a good idea to mix good assets with bad? Isn't the lack-of-trust problem we're facing created by the inability of outsiders to tell who is healthy and who is not? The same goes for government regulators -- if the unhealthy assets could be identified they could carved out into a "bad bank" and the virtuous cycle of health and trust in the good banks might be restored.

The UAE Government would favour mergers of real estate and financial institutions to create better synergies in the current economic situation, a top government official said.

"We are looking favourably to the merger of real estate and financial companies within the UAE as it would create better synergies," Sultan Bin Saeed Al Mansouri, UAE Minister of Economy, told delegates at a conference in Abu Dhabi on Monday.

His comments come at a time when the country's two biggest mortgage lenders - Amlak and Tamweel - are in the process of a merger, while Emirates Bank and National Bank of Dubai have already merged to create the region's biggest lender.

Economics: the new sexy

Listen to the NPR story. Enrollments at universities are up. We may not have predicted the downturn, or know what happened or agree on how to fix it. But we can tell a good story, and studying is more helpful than some of the alternatives. Even finance majors are turning to economics.

Sunday, March 01, 2009

Quote of the day

"Dubai has an economic threat going on," said Timothy Walters, head of the journalism and mass communications department at the American University of Sharjah. "When a society feels threatened, people who manage it try to regulate the media because they know media has the power to change."